Financial Stability Amidst the Pandemic Crisis: On Top of the Wave

621 Pages Posted: 20 Jul 2021

See all articles by Christos Gortsos

Christos Gortsos

National and Kapodistrian University of Athens

Wolf-Georg Ringe

University of Hamburg - Institute of Law & Economics; University of Oxford - Faculty of Law; European Corporate Governance Institute (ECGI)

Filippo Annunziata

Bocconi University - Department of Law; European Banking Institute; Bocconi University - Baffi Carefin Centre

Emilios Avgouleas

University of Edinburgh - School of Law

Rym Ayadi

HEC Montreal

Marco Bodellini

Queen Mary University of London, School of Law - Centre for Commercial Law Studies

Carlos Bosque

Universidad Carlos III de Madrid

Concetta Brescia Morra

University Rome III, Department of Law

Danny Busch

Radboud University Nijmegen - Institute for Financial Law (IFR)

Barbara Casu

City University London - Sir John Cass Business School

Blanaid J. Clarke

Trinity College Dublin - School of Law

Luca Enriques

University of Oxford Faculty of Law; European Corporate Governance Institute (ECGI)

Giovanni Ferri

LUMSA University

Claudio Frigeni

Università Cattolica del Sacro Cuore

Willem De Groen

Centre for European Policy Studies (CEPS)

Seraina N. Grunewald

Radboud University Nijmegen

Rainer F. H. Haselmann

Leibniz Institute for Financial Research SAFE; Goethe University Frankfurt - Faculty of Economics and Business Administration

Bart Joosen

European Banking Institute; VU University Amsterdam

Marco Lamandini

University of Bologna - Department of Business Law

Matthias Lehmann

University of Vienna

Luis Silva Morais

University of Lisbon - School of Law. Jean Monnet Chair – Economic Regulation in the EU

David Ramos Muñoz

Universidad Carlos III de Madrid

Marco Pagano

University of Naples Federico II - Department of Economics and Statistics; Centre for Studies in Economics and Finance (CSEF); Einaudi Institute for Economics and Finance (EIEF); Research Institute of Industrial Economics (IFN); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Juana Pulgar Ezquerra

Universidad Complutense de Madrid (UCM)

Antonella Sciarrone Alibrandi

Università Cattolica

Ignacio Signes de Mesa

Court of Justice of the European Union

Michele Siri

University of Genoa - Law Department; European Banking Institute; EUSFIL Jean Monnet Center of Excellence on Sustainable Finance and Law

Tobias H. Troeger

Leibniz Institute for Financial Research SAFE; European Corporate Governance Institute (ECGI); Goethe University Frankfurt - Faculty of Law

Charles Wyplosz

University of Geneva - Graduate Institute of International Studies (HEI); Centre for Economic Policy Research (CEPR)

Date Written: July 1, 2021

Abstract

The pandemic crisis, which broke out in early 2020, is still affecting human lives and economic activity around the globe, causing unprecedented transformations which were not foreseen just before its onset. The European Union, its citizens and the financial and non-financial firms active therein have also been negatively affected (albeit to a varying degree).

Nevertheless, unlike in the two previous, most recent economic crises, namely the 2007-2009 Global Financial Crisis (GFC) and the 2010-2018 sovereign debt crisis in the Eurozone, the impact on the stability of the EU financial system has been comparatively mild so far. This is due to several reasons: most importantly, the root-cause of the pandemic was not attributed to any sector of the financial system but originated in the real economy. Further, the financial regulatory framework had become much more robust in the meantime (albeit also much more complicated to comply with), credit institutions in particular are better capitalised now than in 2008, with (almost across the board) lower ratios of non-performing loans (NPLs) and significantly stronger liquidity, while financial supervision has also been enhanced and the macro-prudential financial framework adopted in the wake of the GFC was fully activated. Finally, many EU Member States and the EU itself acted decisively, and proactively pumped billions of Euros of support programmes into the real economy to prevent an economic meltdown.

During the last 15 months, national and EU institutions and agencies have orchestrated their efforts towards establishing an appropriate framework in order to primarily support those parts of the population and of the businesses most severely affected by the pandemic and to contain its negative effects. This included a combination of fiscal policy, monetary policy and financial policy measures; new instruments and rescue funds were introduced, flexibility in the application of several existing rules has been applied to the extent necessary and feasible, and some ‘quick-fix’ legislative actions supplemented the pandemic crisis management toolbox.

When we published the first edition of this EBI e-book in May 2020 (‘Pandemic Crisis and Financial Stability’, https://ssrn.com/abstract=3607930), the world seemed to be on the brink of collapse. Reflecting the positive developments over the past year, this second edition supports a more optimistic approach on the further evolution of the pandemic. Entitled ‘Financial stability amidst the pandemic crisis: On top of the wave’, the key assumption is that the various infection waves of the crisis will not be followed by another severe one, as are we gradually reaching a much-desired point of ‘new normality’. And yet, we are ‘on top of the wave’ of the crisis as a whole, as our book title suggests. Therefore, challenges in relation to financial stability should not be underestimated, especially in (but not limited to) the field of NPLs, a new wave of which is emerging due to the impact of the pandemic on the businesses and households mostly affected. Furthermore, accommodating monetary policy measures, conventional and unconventional, fiscal stimuli and temporary financial measures will be lifted as well, meaning that several safety-net components embedded during the pandemic in the institutional and regulatory framework will cease to support economic (including financial) activity in the steady state. In addition, the discussion on the challenges linked inter alia to climate change is in the current constellation more focused than ever before and the adoption of measures to mitigate the related risks is high on policymakers’ and financial supervisors’ agendas. We sincerely hope that this volume will contribute to this debate and may serve as a platform for dialogue to reflect on the right way forward.

This publication contains 17 articles, structured in 5 sections, and discussing all of the above considerations. We are grateful to all authors, most of them members of the Academic Board of the European Banking Institute, who participated in this academic work with their valuable contributions. They develop on various regulatory aspects arising from the prolonged pandemic and related to various aspects of financial stability, at a moment when the (potentially treacherous) perception is that we are close to returning to a new normal. The contributors also discuss the long-term implications for banking and financial markets, and/or arrangements for transitioning back to post-pandemic times.

Contents:

SECTION I: GENERAL OVERVIEW
1. The silver lining of COVID: the end of secular stagnation (Charles Wyplosz)
2. When and how to unwind COVID-support measures to the banking system? (Rainer Haselmann & Tobias Tröger)
3. Lessons from the pandemic for European finance: a twin transformation towards green technology (Wolf-Georg Ringe)
4. EU financial regulation in times of instability (Danny Busch)

SECTION II: NON-PERFORMING LOANS
5. Non-performing loans: new risks and policies (Emilios Avgouleas, Rim Ayadi, Marco Bodellini, Giovanni Ferri, Barbara Casu & Willem Peter de Groen)
6. Banking supervision in times of uncertainty: the case of NPLs (Concetta Brescia Morra)
7. Non-performing loans in the pandemic crisis and the Directive on preventive corporate restructuring (Juana Pulgar Ezquerra & Ignacio Signes de Mesa)

SECTION III: THE ROLE OF THE ECB
8. The ECB’s response to the COVID-19 crisis and its role in the green recovery (Seraina Grünewald)
9. The implementation of the single monetary policy since the outbreak of the pandemic crisis and some considerations on its impact on financial stability (Christos Gortsos)
10. Next Generation EU: its meaning, challenges, and link to sustainability (Carlos Bosque, David Ramos Muñoz, & Marco Lamandini)

SECTION IV: BANKING REGULATION 357
11. Releasability Combined Buffer Requirements after the COVID-19 pandemic (Bart Joosen)
12. Restriction for bank capital remuneration in the Pandemic: A Lesson for the Future or an Outright Extraordinary Measure? (Antonella Sciarrone Alibrandi & Claudio Frigeni)
13. Cultural reforms in Irish banks – A pandemic report card (Blanaid Clarke)
14. Mothballing the economy and the effects on banks (Matthias Lehmann)
15. A post-COVID reformed EU: new fiscal policies preserving financial stability and the future of the banking sector (Luis Morais)

SECTION V: CAPITAL MARKETS REGULATION
16. Emergency measures for equity trading: the case against short selling bans and stock exchange shutdowns (Luca Enriques & Marco Pagano)
17. Fixing the core of EU capital markets legislation during the pandemic: temporary exercises or long-term path? (Filippo Annunziata & Michele Siri)

Keywords: COVID-19, banking regulation, financial stability, European Union

JEL Classification: G18, G21, G38, K20, K22

Suggested Citation

Gortsos, Christos and Ringe, Wolf-Georg and Annunziata, Filippo and Avgouleas, Emilios and Ayadi, Rym and Bodellini, Marco and Bosque, Carlos and Brescia Morra, Concetta and Busch, Danny and Casu, Barbara and Clarke, Blanaid J. and Enriques, Luca and Ferri, Giovanni and Frigeni, Claudio and De Groen, Willem and Grunewald, Seraina and Haselmann, Rainer F. H. and Joosen, Bart and Lamandini, Marco and Lehmann, Matthias and Morais, Luis Silva and Ramos Muñoz, David and Pagano, Marco and Pulgar Ezquerra, Juana and Sciarrone Alibrandi, Antonella and de Mesa, Ignacio Signes and Siri, Michele and Tröger, Tobias Hans and Wyplosz, Charles, Financial Stability Amidst the Pandemic Crisis: On Top of the Wave (July 1, 2021). Available at SSRN: https://ssrn.com/abstract=3877946 or http://dx.doi.org/10.2139/ssrn.3877946

Christos Gortsos

National and Kapodistrian University of Athens ( email )

Akadimias 45
Athens, 10672
Greece

Wolf-Georg Ringe (Contact Author)

University of Hamburg - Institute of Law & Economics ( email )

Johnsallee 35
Hamburg, 20148
Germany
+49 40 42838 7787 (Phone)
+49 40 42838 6794 (Fax)

HOME PAGE: http://www.ile-hamburg.de

University of Oxford - Faculty of Law

St Cross Building
St Cross Road
Oxford, OX1 3UL
United Kingdom

HOME PAGE: http://www.law.ox.ac.uk/people/wolf-georg-ringe

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://ecgi.global/users/wolf-georg-ringe

Filippo Annunziata

Bocconi University - Department of Law ( email )

Via Roentgen, 1
Milan, Milan 20136
Italy

European Banking Institute ( email )

Frankfurt
Germany

HOME PAGE: http://ebi-europa.eu/bodies-of-ebi/academic-board/

Bocconi University - Baffi Carefin Centre ( email )

Via Roentgen 1
Milan
Italy

Emilios Avgouleas

University of Edinburgh - School of Law ( email )

Old College
South Bridge
Edinburgh, EH8 9YL
United Kingdom

Rym Ayadi

HEC Montreal ( email )

3000, Chemin de la Côte-Sainte-Catherine
Montreal, Quebec H2X 2L3
Canada

Marco Bodellini

Queen Mary University of London, School of Law - Centre for Commercial Law Studies ( email )

67-69 Lincoln's Inn Fields
London, WC2A 3JB
United Kingdom

Carlos Bosque

Universidad Carlos III de Madrid ( email )

CL. de Madrid 126
Madrid, 28903
Spain

Concetta Brescia Morra

University Rome III, Department of Law ( email )

Via Ostiense, 159
Rome, RM 00145
Italy

Danny Busch

Radboud University Nijmegen - Institute for Financial Law (IFR) ( email )

Nijmegen
Netherlands

Barbara Casu

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Blanaid J. Clarke

Trinity College Dublin - School of Law ( email )

House 39, New Square
Dublin 2
Ireland
Ph 00353 (0)18961632 (Phone)

Luca Enriques

University of Oxford Faculty of Law ( email )

St Cross Building
St Cross Road
Oxford, OX1 3UL
United Kingdom

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://http:/www.ecgi.org

Giovanni Ferri

LUMSA University ( email )

Via della Traspontina
Roma, Rome 00192
Italy

HOME PAGE: http://www.lumsa.it/giovanni-ferri

Claudio Frigeni

Università Cattolica del Sacro Cuore ( email )

Largo Gemelli 1
Milan, 20123
Italy

Willem De Groen

Centre for European Policy Studies (CEPS) ( email )

1 Place du Congres, 1000
Brussels, 1000
Belgium

Seraina Grunewald

Radboud University Nijmegen ( email )

Postbus 9108
Nijmegen, 6500 HK
Netherlands

HOME PAGE: http://https://www.ru.nl/english/people/grunewald-s/

Rainer F. H. Haselmann

Leibniz Institute for Financial Research SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Mertonstrasse 17-25
Frankfurt am Main, D-60325
Germany

Bart Joosen

European Banking Institute ( email )

Frankfurt
Germany

HOME PAGE: http://www.ebi-edu.eu

VU University Amsterdam ( email )

De Boelelaan 1105
1081 HV Amsterdam
Netherlands

Marco Lamandini

University of Bologna - Department of Business Law ( email )

via San Giacomo, 3
Bologna, Bologna
Italy

HOME PAGE: http://www.diritto.unibo.it

Matthias Lehmann

University of Vienna ( email )

Schottenbastei 10-16
Vienna, A-1010
Austria
+431427735122 (Phone)
1010 (Fax)

HOME PAGE: http://https://eur-int-comp-law.univie.ac.at/team/lehmann-matthias/

Luis Silva Morais

University of Lisbon - School of Law. Jean Monnet Chair – Economic Regulation in the EU ( email )

Alameda da Universidade, Cidade Universitária
Lisboa, 1649-014
Portugal

David Ramos Muñoz

Universidad Carlos III de Madrid ( email )

126, Getafe
Madrid, 28903
Spain

HOME PAGE: http://www.uc3m.es

Marco Pagano

University of Naples Federico II - Department of Economics and Statistics ( email )

Via Cintia - Monte S. Angelo
Napoli, 80126
Italy
+39 081 675306 (Phone)
+39 081 7663540 (Fax)

Centre for Studies in Economics and Finance (CSEF) ( email )

Via Cintia
Complesso Monte S. Angelo
Naples, Naples 80126
Italy

Einaudi Institute for Economics and Finance (EIEF)

Via Sallustiana, 62
Rome, 00187
Italy

Research Institute of Industrial Economics (IFN)

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http:/www.ecgi.org

Juana Pulgar Ezquerra

Universidad Complutense de Madrid (UCM) ( email )

Carretera de Humera s/n
Madrid, Madrid 28223
Spain

Antonella Sciarrone Alibrandi

Università Cattolica ( email )

Milan, Milan
Italy

Ignacio Signes De Mesa

Court of Justice of the European Union

Boulevard Konrad Adenauer
Kirchberg, L-2925
Luxembourg

Michele Siri

University of Genoa - Law Department ( email )

Genoa
Italy

HOME PAGE: http://unige.it/en/

European Banking Institute ( email )

Frankfurt
Germany

HOME PAGE: http://ebi-europa.eu/members/fellow-academic-members/

EUSFIL Jean Monnet Center of Excellence on Sustainable Finance and Law ( email )

Italy

HOME PAGE: http://www.eusfil.eu

Tobias Hans Tröger

Leibniz Institute for Financial Research SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany
+49 69 798 34391 (Phone)
+49 69 798 34536 (Fax)

HOME PAGE: http://safe-frankfurt.de/research/all-researchers/researchers-details/showauthor/prof-dr-tobias-troe

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.global/users/tobias-tr%C3%B6ger

Goethe University Frankfurt - Faculty of Law ( email )

Theodor-W.-Adorno-Platz 3 (Westend Campus)
Frankfurt, 60323
Germany
+49 69 798 34391 (Phone)
+49 69 798 34536 (Fax)

HOME PAGE: http://www.jura.uni-frankfurt.de/43940696/English-Version

Charles Wyplosz

University of Geneva - Graduate Institute of International Studies (HEI) ( email )

PO Box 136
Geneva, CH-1211
Switzerland
+41 22 908 5946 (Phone)
+41 22 733 3049 (Fax)

HOME PAGE: http://heiwww.unige.ch/~wyplosz

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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